Bearish Earnings Reports

Tom Gentile

Posted in
Education

By: Tom Gentile
August 23rd, 2023

4 mins read
Top Bearish Stock Patterns for August

Last Week, the Bears awoke as we moved from pullback buys to a change in sentiment.   As all eyes are on Jackson Hole this week, the FED now looks to new inflation numbers and of course future intentions are on interest rates.  Meanwhile our eyes once again will focus on the end of Earnings Season, but this week it’s all about the Bears.  

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Now last week I showed you this chart of the SPY etf.  In fact, heres the exact chart I talked about.  I wanted to bring this up, and compare it to what has happened in the span of a week…  

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So last week the SPY dropped 3 percent, but whats more important is how much volatility rose last week… 15% or about 5x the pullback move in percentages.  Whats spooking everyone?  

Well it’s a combination of things…  First, yields climbed again as the TLT and Bond funds, which are usually accurate in forecasting future interest rates had a change of heart.  We were expecting 2 rate cuts into years end, but that got changed from cuts to hikes, to now the Fed wants to make a decision meeting to meeting.  

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This lead to a drop in Bond ETFs which is now forecasting even higher yields…  And its not just the stock market that’s being affected…

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This is the price of GLD, the streetracks Gold ETF…  Interest rates hit most commodities just like the stock market.  GLD dropped about 2% last week and is now more than 10% off its YTD highs.

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Take a look at this chart of Bitcoin… its down nearly 10% in just the last week, most of it related to a sale by Space X, but instead of bouncing like it has on past negative news, it seems to be trading at the low end of last weeks prices.  Chalk that up to Jackson Hole.  

So as I said last week, while everyone is focusing on news and opinions, lets be pattern traders… 

And like I also said last week, though theres no guarantee that patterns are 100% foolproof, I want to show you my top 3… my only 3 bearish patterns going into the end of August…  Lets take a look at each.  

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Macys has been moving down on the chart for months now, but the week prior to earnings its 4-4 with an average drop of 7.7% the week into earnings.  What also looks good is the fact that implied volatility (that’s the blue line) has gone up prior to every earnings, and that’s good for put buyers.  

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Toll Brothers is a home builder if you didn’t know it, and you might think I am wrong about this one… because the trend is up.  I am not looking at the monthly trend here, I am focusing on the week before earnings, which for this case, has been down an average of just under 6% in the last 4 quarters.  

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Finally, PDCO… this one is 3-4 in prior moves down a week before earnings, but the volatility is all over the place… in fact I removed it from this chart because it was so uncertain.  Best way to play a stock like this is short the stock a week prior to earnings.  The last year would have gone 3-4 in this pattern with an average move of 5.5% on the stock.  

Which one is the Best?  Now that’s a loaded question, but if we look at them on a table that might help…

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These are ranked by the amount of movement down prior to earnings.  Looks like in terms of percentage moves, Macy’s is first in the bearish parade.  Keep in mind that both Macy’s and Toll Brothers are at the end of their cycle though…  Patterson ranks 3rd, but their options are not as liquid so in my humble opinion that’s a stock trade at best…  

Now again, I just showed you stock patterns only.  If you can use options, buying premium a week before earnings has been shown to work, but that also means closing the position and stepping aside right before the announcement.  

Thanks for watching, share comments with me on how your using these type of patterns in your trading.  Next week I will be looking at the month of September… cya then!  –  Tom

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